The bill would do a variety of things, but from a startup perspective one important thing it would do is renew the 100% exclusion from tax for gain on qualified small business stock received from qualifying C corporations during the calendar year 2014.

Qualified Small Business Stock

The 100% exclusion expired at the end of 2013. This bill renews the 100% exclusion for stock issued by qualifying C corporations issued before the end of 2014.

Thus, if:

You received founder shares in a C corporation in 2014, or

You invested in shares of a C corporation in 2014, and

You hold those shares for 5 years,

You may be able to exclude up to $10M in gain from the sale of those shares.

There are a variety of other limitations that apply to the Section 1202 qualified small business stock benefit. For example, the corporation issuing the shares has to, among other things, be a “qualified small business,” have less than $50M in gross assets, have an active business, and be engaged in a qualified trade or business.

The Text of the Extension

This 100% exclusion affects your choice of entity considerations significantly. Only C corporations can issue qualified small business stock. Thus, if you form an S corporation, your founder shares cannot qualify for the 100% exclusion.

The Cap on the Benefit

The 100% is not uncapped, but you can exclude up to $10M under Section 1202.

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Incorporation State

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